Nomura picks 2 winning stocks in Japan — one is already up 122%

Published Sun, Jul 18 20218:57 PM EDT

Japan's stock market may be lagging other Asia-Pacific markets, but two of the index's high performing stocks are powering ahead amid a global shipping boom. The Nikkei 225 is up 2.04% so far this year, but one of its constituent stocks has more than doubled in value in the same period. Nippon Yusen KK Shipping and transportation company Nippon Yusen KK surged 122.31% year-to-date as of Friday's close, according to CNBC calculations. But the bull run is not over, says Japanese investment bank Nomura, which expects further gains for Nippon Yusen. The bank predicts the stock could rises as high as 6,750 Japanese yen per share — that's a more than 26% upside from its Friday close. It comes after the Nippon Yusen in early July raised its profit guidance substantially, including a 97% jump in expected operating profit for the current fiscal year ending March 31, 2022. "We estimate that new guidance is higher than our forecasts because of major revisions for the air cargo transportation segment and the dry bulker business," Nomura's Masaharu Hirokane said in a note dated July 1. Nippon Yusen's proprietary businesses "look to be performing well" alongside Ocean Network Express, a joint venture which the firm has a 38% stake in, Hirokane said. Mitsui OSK Lines Mitsui OSK Lines is another Japanese shipping stock that Nomura sees strong upside in. The investment bank has a price target of 7,500 yen per share — about 51% higher than where it closed on Friday. That price target comes even as the stock has gained more than 57% so far this year. Mitsui OSK has an international shipping business including the operation of dry bulk carriers, energy transportation and operations in container ships and container terminals. In June, the company issued a substantial upgrade in guidance, projecting a 120% surge in ordinary profit for the full fiscal year ending March 31, 2022. Mitsui attributed the improved guidance in part due to to stronger than expected cargo movements and spot freight rates at Ocean Network Express (ONE). ONE is a Japanese shipping and transportation company which Mitsui OSK, Nippon Yusen KK and Kawasaki Kisen Kaisha have stakes in. In another Nomura note dated July 13, Hirokane pointed out that Ocean Network Express could benefit from a global shipping crunch that is delaying shipments around the world. The analyst cited a report by the Japan Maritime Daily that said the Shanghai Containerized Freight Index "had reached record highs" on July 9 for routes from Shanghai to the U.S. west and east coast. The index is a rate indicator on sea freight from China. "The article also noted that rail connections from the US west coast to inland destinations were taking two weeks or more," Hirokane said. "If true, supply-demand is continuing to tighten, which should prove a tailwind to Ocean Network Express." Shipping boom As most of the world bounces back from the pandemic doldrums, demand for goods surged . Strong consumption is also in part due to easy monetary policies by most central banks that have pumped a lot of cash into the economy. All that is driving up shipping rates and costs for businesses and consumers. The problem is compounded by a shortage of containers , a massive cargo ship that was momentarily blocking traffic at the Suez Canal earlier this year, and virus outbreaks that have disrupted port services and delayed deliveries . Analysts from JPMorgan and TS Lombard have also highlighted investment opportunities for shipping stocks at a time when demand is high and supply is tight for the sector.

Japan's stock market may be lagging other Asia-Pacific markets, but two of the index's high performing stocks are powering ahead amid a global shipping boom.